The effects of corporate social responsibility on entry

Abstract

This paper investigates entry decisions in industries where firms follow Corporate Social Responsibility (CSR) behaviours. Provided that the market is sufficiently large, the key result is that the adoption of CSR rules acts, loosely speaking, as an entry barrier in the industry because the incumbent imposes a “penalisation” on the potential entrant’s profits which is more harmful the larger the social concern is. As regards social welfare, two interesting results appear. For relatively high fixed costs, a welfare reducing entry may happen; however, low levels of the social concern may reduce the likelihood of a welfare reducing entry, in line with the belief that CSR is pro-consumers. On the other hand, in sharp contrast with this belief, for a sufficiently high level of social concern, entry is deterred when duopoly is welfare improving: taking care about consumers’ welfare by firm brings upon a damage for consumers.